Gold Forecaster - Global Watch

Central Bank Gold Sales to end prematurely?
In the last couple of months a great deal of emphasis has been placed on Central
Bank sales. These have been heavy and along with diminished E.T.F. purchases
and even net sales, have held the gold price back. But a major point has
been overlooked in these commentaries. How long can they last?

The amount of sales per year is not the sole limitation on these sales, but
the announced total sales by each individual Central Bank is the defined
limit. Our Table below highlights the situation entirely.

Central Bank Gold Agreement - Sales
in 2006

Notes to table: -
1. This now includes the unannounced sales for both years from Spain & Belgium,
which totaled 177.1 tonnes for the two years.
2. We have excluded the unannounced sales from the totals so as to
retain accurate levels of decline in announced sales.
3. Germany's sales were for coins, which we do not regard as part of the
announced sales for the purposes of this situation.

This table has as its second column the sales that each Central Bank signatory
to the Central Bank Gold Agreement announced it would sell. We are presently
in the third year of this Agreement. The Agreement also includes a 'ceiling'
of 500 tonnes per annum. The year commences on 27th September each year.

As
you can see the Agreement has been kept. So far less than 500 tonnes of gold
has been sold each of these years, with the total of last year's sales less
than 400 tonnes. In this, the third year, we still have another 5 months to
run beofre the year is finished, leaving two more years thereafter until the
Agreement runs out.

The tonnage remaining of the announced sales is down to 617.5 tonnes,
as of the end of April this year. These sales are to last for the remaining
2 years five months of the Agreement.

If sales continue at the rate we have seen over the last two months at
around an average of 10 tonnes these sales will last just over a year before
they are complete and will terminate.

However, not all the signatories have announced the sales they intended to
make during the agreement. The two nations that kept quiet about their inteneded
sales are Spain and Belgium. Yes, the Table gives the history of the sales
from these nations and we can pick up the history of the selling that these
two made in the past.

A glance at these show that Belgium has not sold for the last 19 months.
We have no reason to believe they have more to sell in the remaining Agreement
period.

Spain on the other hand has sold 147.1 tonnes to date. Last year the Central
Bank of Spain led us to believe that these sales were tied into the maturing
of Call Options they had sold, that were now being taken up. The pattern
of present sales gives us reason to believe the same is happening now.
Clearly the prices at which the Central Bank of Span sold these would have
been the gold prices of up to 5 years ago [$350+?], a sad sight
to the Members of that Bank's board of Directors, let alone the Spanish
public. Spain has sold 54.6 tonnes since the beginning of the year, the
bulk of it in March [40 tonnes]. The total sales levels for the last two
complete years, indicates that we are near to the completion of this year's
sales by Spain.

We
suspected France has been a seller of note and is likely to continue to sell
until it has exhausted its allocation of gold for selling. As Sarkozy was the
Finance Minister at the time of the announcement of France's selling [clearly
to an unhappy Banque de France] and with his prospects of being the next President
of France, we expect the full amount of 600 tonnes to be sold.

So where does this all lead us to?

If the present selling rate continues at around 10 tonnes a week for the
balance of this C.B.G.A. year, then expect another 200 tonnes to be sold
before the 26th September this year. This leaves 400 tonnes for the next
two remaining years of the Agreement, ignoring Spain. 200 tonnes per annum
is just not a threat to the gold price and well down on the level
of the 500 tonne 'ceiling'.

Should
Spain sell in the same way it has to date, then expect next year to see
the February to May period see around 60 tonnes over the next two years
from Spain alone? But there is no way of knowing if this will be the case.
It is even possible that these sales are terminating now?

If we stretch out the remaining announced sales over the remainder of
the agreement, then we will see only approximately 4 tonnes a week sold
until the agreement runs out.

The unavoidable conclusion we reach is that Central Bank gold sales
will not continue to hold the price back for much longer. The signatories
involved must have that in mind and for gold to continue as an accepted
Reserve Asset in their vaults, they would be wise to sell in such a manner
so as to lower the likelihood of price 'spikes' in the market, so bring
back the confidence to gold as a monetary metal, it once had.

If this is not their intention but sales are to continue at these high
levels then it is possible we will see no more Central Bank Sales from
these signatories from this time next year onwards?

Oh, we have not mentioned the purchases of gold by Central Banks [Greece
and non-signatory banks]?

"Global Watch: The Gold Forecaster" covers the global gold market.
It specializes in Central Bank Sales and details, the Indian Bullion market
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influential gold price factors across the globe, so as to truly understand
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